Uccmal

Sanj, I am with Estimated Profit. I come 80% to meet the other members of the board. Moving the location to a number 2 option would be ideal. Part of the problem with Bidali's is that they want us out by about 10 pm and there is pressure to order dinner. Where we were once a small and intimate group we had both time to chat with other board members and hear Francis, Sam, or Brian talk. We have now had to sacrifice the informal talking in favour of the speakers. A buffett in a hotel would be a fabulous option, albeit more expensive. We could start earlier and finish later. An hour in there for the FFH speakers, if they come. Recognizing that some members may not be as well off I am sure we could arrange something to help cover their dinner. That I have no problem with as the board members have given me so much. Al.

Biaggio, I think you need to keep in mind that recalls and litigation are staples in this industry. JNJ dedicates several pages of each AR to discuss litigation. I also think you are correct about the review of operations. There may be more to come as they identify defects in the manufacturing process. BTW: I have a smallish position in JNJ relative to some of my other positions. I like the dividend and the price but not enough to back the truck up. Al.

Just thought about something for fun, going to run a bloomberg screen tomorrow on japanese components of the nikkei aggregate net earnings average from their "day of reckoning" until today but adjusting the value of the yen to US Dollars. It will be interesting to see if my theory is right, that even though the amount of yens they earned decrease the amount of USD went up. If that is the case it could end a lot of this argument. You see this ties into the belief that only one central bank regulates the flow of GLOBAL CURRENCIES and in today's globalized economy that just isn't so. Please let us know how this turns out! Thanks, Uccmal

Just a point of order here Twacow: Most of the reason Germany was in recession post World War I was due to the insane reperation fees demanded from the rest or Europe who were in turn paying debt to the US. Hitler got elected and promptly stopped paying the fees. This is what led to the Marshall Plan after WWII. Avoid the mistakes of the past.

Consumers in the US are retrenching. Corporations have already been hoarding cash. The market acts as a discounting machine, discounting events 3 to 6 months ahead. If you looked at the action yesterday the housing numbers were worse than even the worst prognosticator, and the markets barely budged. This indicates to me that all the bad news has been priced in. The US will continue its retrenching and there will be more pain coming but the collective will deleverage over time, and it will end. Its very easy to get caught up in the numbers of 1 T this and 6 T that, and we forget that the US government would collect Trillions in taxes from a market rise that only puts us part way back to July 2007. Same for corporate taxes on those fantastic profits. Parsad, myself, and others have been buying large caps from the US, a number of which sport higher CASH dividends than I can borrow at. The masses are buying bonds which has led to a virtually unprecedented rally in bonds. In the economic cycle bonds rally before stocks. Sanj. and ouselves (buyers) are likely early but unlikely wrong. As for deep values, if one is waiting to get JNJ at a lower price when it sports a 3.5% dividend that will not get cut, good luck! I figure we will be looking back on this time as a time of great deals and those who missed it will be still bemoaning that there are no deals. I for one cant predict if markets will go lower by 10% or 20% or higher by 50% in the coming year but it wont matter a damn if I get lucky and buy JNJ below 50 rather than 57.50 when it is above 100 down the road and paying me 15% on my purchase price every year.

Hawks, I am glad you posted this. I am not one for predictions on the market. I haven't seen Buffett or Watsa stop buying companies or stock during this recent nascent recovery. We have watched markets go sideways for 13 years or something like that. During that time I have increased my net worth by about 15x from the money I initially put in. I was investing every single day through the November and March crashes in 08/09. I found I just had to bite my tongue and buy. It was not an easy thing to do. Going against the tide never is. I am just old enough to remember 1973-74 when OPEC was putting the squeeze on and the US was done for, for all time. That was the most active period of Buffett's public market investing ever. I lived through a brutal recession in the early 1980s when the "cheery consensus" was penned, I believe. Unemployment in Canada reached in the low teens for two or three years. I lived through the ceding of the world economy to Japan and the notion that we have got to learn the Japanese way. more to come...

Well, actually I'm trying to point out that it's probably not prudent for the average investor to focus on macroeconomic forecasts, whereas for an insurance company that has significant leverage, it is probably a prudent thing to do. Alot of people are having a difficult time making that differentiation. Each to their own! Cheers! That is well put. Prem has two things going with the hedges. One is protecting a very large portfolio of money that is not actually FFHs. The other is an outlier bet on a market collapse. I dont have issue number one and it is too expensive for me to worry about number 2.

Approximate order of size: FFH - > 40%; ~ 13 years Largish: Rus.to > 10 yrs Pwf.to - 3-4 years this time ssw fbk.to ge Smaller (not size distributed) slf.to bce.to jnj kft ko akt.a.to cfx.un cfp.to pd.to mtl.to > 5 years hd mfc igm rbs.pr.p - nyse aet.un >5 years pwt.un - long time Rim - trading stock - last week - have held many times before I haven't added anything new to me this year except akt.a - courtesy of woodstove. Lately I have been trading in and out of the same group trying to lower my cost basis. Works in Canada where there is no long term/short term trading rule. My total dividend yield is about 4% depending on the day.

Watsa is a Randian... Under your options you list Dell, Wmt, kft, bac, jnj, msft, qcom, ebay- are these long positions?

Eric, That's too true about FFH. These are not hedges but investments. FFH is my largest holding by far. Anyway, the thread said to invert so I inverted. :D Doesn't mean I am right any more than David Rosenberg is right every three days when he pens another dreary prediction. The video of Prem from the India Forum was interesting because he said at the end again that we haven't fully taken our medicine yet in terms of a full blown recession and until we do there will be more pain. Like you, aside from FFH I have been collecting large caps that pay dividends that may actually grow during a crash so I have hedged in my own way. Staying away from call options, writing puts, and options in general.

Well how about this: 1) Last I looked it is not different this time than any other time. Recall Ronald Reagan waving around socks on TV or Clinton campaigning on its the economy stupid. 2) The business cycle has not been repealed. Stocks crash, Recession ensues, governments stimulate (i was not aware they had stopped, yet), bonds rally, commodities rally, STOCKS rally, expansion starts. 3) I am not confirmed on this but it is my understanding that there has never been a down stock market in a 3rd year of a presidents term. S&P500 is at 1100, how high will it rise.\ 4) Big companies are flooded with cash - debt is cheaper for large companies than it has ever been. This week Intel spent 8 B and BHP is trying to spend 40B. Ultimately they will spend this cash through business investment which means purchases and jobs down the pipe - You didn't think they were going to give it to the shareholders - really? 5) Increasing profits and increasing stock prices lead to more tax revenue. More tax revenue means less government borrowing. 6) Consumers saving now means they will have more to spend later as their cars wear out, homes need work, haven't had a vacation in three years. 7) Prem needs to protect an insurance company against a potentially ugly climate. Rosenberg makes his living a a shill and there is a ready and willing disaster audience right now. I have not seen FFH slow down in their investing one bit. Etc. etc.

oec, I dont think you need English lessons. :-). More like MFC needs to simplify the business. I believe you are correct but will not commit. Because these entities have a certain guaranteed rate of return per period the longer the equity markets stay flat the more they need to make up in the future as the liability adds up. I read through the most recent Q and was left with the thought that there are many much more simpler businesses trading at similar discounts. If MFCs fortunes are tied to the equity markets then it is much simpler to just buy the S&P500. The company appears to have locked themselves into a box. If markets dont go up they continue to hemmorage more and more each Q. If they hedge at these prices they lock in a huge loss. When the markets go up they wont gain back what they have lost due to the drag. The same issue is facing them on the fixed income side. I am sure there is a price to buy the stock at but am not sure I can place it. They certainly have no trouble rasing cheap cash. I just think it may be a real long wait to see them recover to their former bluster. They can grow their way out but it will take years. Investing truly is a long term learning process.

Minuses: - Very large company - depressed market cap of 172 B - Where do you go from here - at a certain point it is best to pay a large portion of their cash out as dividends rather than aiming for market cap growth. - present management appears to have lost control - probably time to drive out the CEO and the QA/QC lady who is taking the fall - He should have been at the hearings - This is immently fixable in my opinion - HD has effectively done it. - company appears to have gotten sloppy - because there were no deaths they are trying to excuse it. - Large size seems to necessitate the need for purchases of larger outside entities in order to expand. I find this process to be dubious - Better to contract out certain things and buy in specific products. - Company needs to be decentralized again - each operating division needs to be responsible for their own product lines with their own brands. I guess it boils down to whether I will still buy their products and the answer is yes, unless I see more reasons otherwise. I do own the stock and have been buying at this price. Certainly not a Graham play but I have set up a certain amount of my holdings to generate cash and protect me from a market crash as much as one can.

Here is what I see with JNJ: Pluses: - Lots of cash to do what they want with including acquisitions as needed to add drugs - Can borrow money at rates that are beyond cheap - 2.9% for 10 years - Products that you dont even know you are using - take a look through a lady's supplies one day and you will find several JNJ products (dont get caught or at least ask permission first) - I still buy their childrens products for the baby even though there has been a recall. - low corporate debt - Diversification across product lines - less dependent on single blockbuster drugs such as Pfizer - Demographics and first past the post - they already exist and have supply lines and product distribution channels in place - hard to compete with. - R&D - article refers to nano-drugs. - dividends - refer to minuses minuses - next post

You are correct: Us dollar goes lower relative to Cnd dollar and shares should appreciate in US currency. IMO it is unlikley that there is much chance of CDN dollar exceeding par. It is more likely that the Us dollar will appreciate from here or no change.

I recall Prem showing a slide comparing interest rates to UW profit a few years ago. When interest rates were at a sustained low level companies started to write for profits. It doesn't seem to have held into this cycle so far.

I agree with you on Intel Cardboard. SH would be better served with a dividend. I am not even very fond of share buy backs. So few companies do them well. The dividend would keep them focussed better as per Power Corp. I definitely prefer low ego management. HD fits that bill these days. The cult of personality under Nardelli has given way to a dramtically improved operation. Ironically alot of Nardelli's aggressive measure are paying dividends now. As for Kraft and Buffett's disappointment I think it was more of personality issue than Buffett would care to admit. He essentially met his match in terms of stubborness and intellect. The Cadbury purchase may have been pricey versus Buffett's expectations but a food and confection business buying the same is not a bad fit. In one fell swoop Ms. Rosenfeld gained a cash flow machine and took out a major competitor. Certainly better than a manufacturer buying a software firm.

As per Norm, I ran a screen of <.85 bv, debt < 50%; and PE<8.5 and got nearly 300. Some I even recognize.

Munger, Maybe you should take off your critics hat and offer something to the board. Just a suggestion. Ucc.

Sure he would. Some of mine: SSW, FBk, SLf, FFh (close enough), cfp, pd, mtl I dont recall any mention of "Quality" companies: Just low debt and cheap.

Walter and his son averaged annual returns of just above 20% from which he deducted his hurdle rate to get the partnership's 15%. On a compound basis he completely trounced the indexes. All by performing the simplest of systems. Simple but not easy. In this climate today he would be 90% invested with 10% available for redemptions. He did not restrict redemptions because many of his clients invested their personal "working capital" with him. I am a big fan of his methodology because it takes alot of the macro, and guess work out of the process (guess work being discounted cash flows, commodity prices, etc.). I am also a fan of the way he used diversification to protect his downside from any one bad call. I am also increasingly a fan of his preference for simple to understand companies (manufacturing, retailers and the like) - call me a slow learner in this regard. Keeping the high level of diversification allowed him to wait the years he often needed to see results from some companies. There is an enormous amount to be said for this method. Now, he didn't face 2008/09 meltdown but he was in business long enough to face meltdowns of nearly the same scale and long periods of lackluster markets.

Should the market suffer a 10% drop, there will be another big hit to P&L. At a 15% drop, it is highly likely that equity dilution & a total dividend cut also come into the picture. While hedging will reduce the impact, & there is very little ‘real’ possibility of insolvency – if there is a 10-15% drop, Mr Market is unlikely to perceive it that way. Thanks for the great posts OEC and Sharper. OEC, I think you are correct in the assertion about Mr. D'Allesandro wanting to exit of a high note. The comparison to Welch is apt. At this point the company may well eliminate the dividend, and raise capital at pricey rates. They are probably in a relatively good position to raise capital due to high institutional ownership. The big pensions in Canada wont have a choice. MFCs position is probably no where near where FFH was at in 2003/04/05. Manulife's core business is undamaged as noted unlike FFH whose core business was severely damaged in those years. I figure there will be some time to get to further know the company before committing any money, as it continues its modified death spiral down to below its 1999 IPO price. What MR. Guloien will take away is the need for this business to have stability.

I still own Royal Bank of Scotland RBS.PR.P - NYSE - since a year ago april/may when someone on this board discussed it. They actually had an offer out in spring to buy it in at $14/share that I ignored. The Maturity is 25. Another couple of years and the dividend will have paid my purchase price back.

I suppose discussing the merits of the various accounting systems still leaves one problem. The losses whether realized or not are real in terms of maintaining their capital ratios. The 2/3 decline in their currency presents another problem. This comes on the heels of the CEO bragging that they would have a fortress of capital when they cut the dividend last year The constant renewal of capital via preferreds and bond issues becomes more problematic as the company loses value. Kind of a modified death spiral. Believe me I am not happy about this. I have some MFC shares bought at a higher price, in a tax sheltered account, meaning no tax loss if I sell. That is what you get for nor understanding exactly how a company makes its money.

Bronco mentioned JNJ above. This news is interesting here: http://www.bloomberg.com/news/2010-08-12/johnson-johnson-sells-1-1-billion-of-debt-at-the-lowest-rates-on-record.html The gist is that JNJ has sold ten year bonds with an interest rate of 2.95% and YTM of 3.15%, and 30 years for 4.5%. 1 billion worth which is about 15% of JNJs total debt load. Their dividend at the present market rate is 3.4%. Getting money so cheap certainly bodes well for future of this one company. I have shifted my focus in this climate to stocks that are paying reasonable dividends that are not in much danger of being cut. Should there be a multiyear sideways market I much prefer to get paid along the way.